TaxCorporate TaxEditorial roundup: Reform must follow PAYE overpayment fiasco

Editorial roundup: Reform must follow PAYE overpayment fiasco

More than ten million people may have paid too much income tax due to errors in the HM Revenue and Customs (HMRC) tax code system, some reports claim

HMRC admitted last week that 4.3 million people were in line for tax rebates
because they overpaid a total of £1.8bn in tax between 2008 and April this year.

A further 1.4 million face demands for repayment because they paid too
little.

However, HMRC records show that in addition to the 4.3 million cases it
admitted to last week, “legacy” errors may have resulted in another 5.8 million
people overpaying income tax before March 2008, the
Daily
Telegraph
reports.

Experts said the problem of overpaid and underpaid tax was growing as PAYE
failed to reflect the modern workplace and its frequent changes of job, pay and
benefits and accompanying changes in people’s tax codes. The recession is likely
to make the problem worse.

Good news about tax rebates for up to ten million people, following
widespread bungling of the Pay As You Earn (PAYE) system, could be overshadowed
by new bureaucratic burdens for four times as many taxpayers, accountants claim,
according to the Daily Telegraph’s Ian Cowie.

He quotes Chas Roy-Chowdhury, head of tax at the Association of Certified
Chartered Accountants
(ACCA),
as saying: “The remedy may actually be to send everyone a tax return, as happens
in Australia and the United States of America. This option may not be very
palatable in the United Kingdom but then, unless HMRC’s new computer
architecture can sort out this mess, that may be the only choice.

David Prosser, business editor of the Independent, writes that around
two-thirds of people receiving letters from the taxman will be told they have
paid too much tax and that they are now due refunds totalling £1.8bn.

The tax errors will accelerate plans by the Coalition to overhaul the entire
PAYE system, the
Daily Mail
reports.

A senior Tory source said: ‘Fairness is a big part of this Coalition and it
is not fair that many people have overpaid their income tax while many have
underpaid.

‘This happened because the last government failed comprehensively to reform
the PAYE system. We are now dealing with that mess.”

The government is currently consulting on plans to give each employee be
given a single computerised tax account which brings together their employment
and NI records, giving HMRC real time information of all payments made.

Currently, both employers and pension providers make tax and national
insurance payments for employees to HMRC and report them to the tax office once
a year. Annually reporting those figures can result in under- and over- payments
of tax.

Improvements to the tax system cannot come fast enough to some commentators
who accuse HMRC of arrogance and complacency.

“People on PAYE are meant to be able to relax, knowing that the figure in the
bottom right-hand corner is theirs to spend. It is a shock to find that the firm
ground is actually a swamp and that you owe a mystery sum to the Revenue,”
Purves writes in an opinion article for
the
Times
, adding: “If the taxman can just climb in through the
window of your payslip to remove a random extra sum of his own calculation, you
start to feel as if the whole theory of government, outlined above, is shaky.”

The taxman credits the £400million system, introduced last year with greater
accuracy, saying its computing power has identified many discrepancies between
taxpayers’ earnings and tax contributions that were missed in previous years.

However, the computer system has been hit by delays and rises in cost, and
concerns about the accuracy of the information it held following an
investigation by the
National Audit
Office
, the Whitehall watchdog, the Telegraph reports.

Further reading:

Six
million pay the wrong tax

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